Tesla Swings At Direct-Sale Bans As Bigger Fight Awaits

Tesla stores, like this one in Miami, sell cars directly to customers, bypassing dealerships. Tesla has had to fight to keep its stores open in some locations, most recently in New Jersey.

Joe Raedle
/ Getty Images

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Originally published on April 11, 2014 7:37 am

Try to buy a Tesla in some states, and you may find yourself having to shop online. Texas and Arizona are among those that have banned direct sales of the electric vehicles. New Jersey may be next. Tesla intends to fight a ruling in the state that says it has to close its stores there by April 15.

These individual disputes could turn into bigger battles, as Tesla works on making cheaper, more mainstream models.

The question isn't really about the cars themselves. It's about how they're sold: directly to consumers.

In Tesla's Manhattan store, there aren't signs advertising "0 percent down." No garlands of triangular flags. There's not even a car lot.

The neighborhood, Chelsea, is expensive and known for its art galleries and fancy stores. If you didn't notice that the glass front says, "Electric Cars for Sale," you could easily mistake it for just another gallery or shop.

At the back of the store, Paul Stamm is helping a couple choose options for a new car. He's not a dealer. He's a senior ownership adviser. Bradley Spieler and Natasha Wehrli are standing across from him at a tall, sleek wooden table, contemplating choices like fog lights and shock systems.

This is really the essence of the Tesla customer experience: more Apple store than your father's Oldsmobile dealer.

The Sale

Diarmuid O'Connell, Tesla's vice president of business development, says the company has to sell cars in a different way.

"The typical experience with customers is to spend 2 to 3 hours with them over the course of several visits in order to help them understand the technology in general, the background of the company, and the merits of the vehicle specifically," he says.

O'Connell says it takes a lot of time to explain the merits of an electric car.

When you buy a car from a dealer, the price of the car is usually negotiable. And then there are extras — take the car on the spot, and you may get a satellite radio.

At Tesla, there's essentially one model for around $70,000. And the add-ons, like an amped-up sound system, also have fixed prices.

Car Competition

But what Tesla calls transparency, dealers call a threat to the free market.

Jim Appleton, president of the New Jersey Coalition of Auto Retailers, says Tesla shouldn't be allowed to sell directly to consumers.

"The franchise system that's followed by every other automaker in the marketplace gives the consumer several choices," he says. "They can buy from any one of a number of competing dealers, and that drives competition."

Tesla says it has plenty of competition from Mercedes and Cadillac and other luxury carmakers, especially now that they're all coming out with electric vehicles.

Bradley Spieler, the prospective Tesla customer, currently owns a BMW. He says shopping with Tesla is a new experience.

"I don't feel like somebody was trying to hustle me like when you go in ... traditional car dealerships," he says. "I didn't get that car-dealership-dude vibe from him at all."

Making Inroads

Tesla sells very few cars compared with other carmakers. So the fight with franchise dealers isn't really about Tesla taking business away from them right now.

It's really about Tesla working on a cheaper model, says Seth Berkowitz, chief operating officer of the car-review website Edmunds.com. That new model would have Tesla competing in mainstream markets.

"It's trying to make as much inroads as it can, as quickly as it can while it's still small, knowing that as it gets larger, the fight will even be more intense in the future," Berkowitz says.

Tesla recently negotiated deals to stay open in Ohio, New York and Washington state.